Annual report pursuant to Section 13 and 15(d)

Postretirement Benefits

v2.4.0.6
Postretirement Benefits
 12 Months Ended
Dec. 31, 2011
Postretirement Benefits [Abstract]  
Postretirement Benefits
Note 15 – Postretirement Benefits

Overview. The Company has defined contribution plans, qualified and nonqualified defined benefit pension plans, and other postretirement benefit plans covering substantially all of its employees. The Company's contributions to its defined contribution plans are largely discretionary and are based on various percentages of compensation, and in some instances are based on the amount of the employees' contributions to the plans. The expense related to these plans was $30.9 million, $25.0 million and $24.0 million in 2011, 2010 and 2009, respectively. Company contributions to multiemployer plans were $0.5 million, $0.3 million and $0.4 million in 2011, 2010 and 2009, respectively. The multiemployer plans are not significant individually or in the aggregate.
 
 The Company's domestic pension and retiree health care and life insurance benefit plans, which are discussed below, provide benefits based on years of service and, for some plans, average compensation prior to retirement. The Company uses a December 31 measurement date for these plans. The Company's foreign postretirement benefit plans are not significant individually or in the aggregate.

Plan Developments.  During 2011 and 2010, the Company froze future benefit accruals for certain hourly pension plan participants effective December 31, 2011.  The Company recognized these actions as curtailments.  Additionally, benefit freezes in the retiree medical and life insurance benefit plan for certain hourly participants were recognized as negative plan amendments due to the elimination of benefits earned.  In connection with the negative plan amendments, the Company recognized reductions of its benefit obligation for hourly retiree medical and life insurance benefit plans of $6.1 million and $0.8 million in 2011 and 2010, respectively.

During 2009, the Company froze future benefit accruals for certain hourly pension plan participants effective December 31, 2009, and eliminated future service for other hourly pension plan participants due to plant consolidation actions.  The Company recognized these actions as curtailments.  Additionally, a freeze of the retiree medical and life insurance benefit plan for certain hourly participants was recognized as a negative plan amendment due to the elimination of benefits earned and a curtailment due to the elimination of future benefit accruals. Curtailments due to employee terminations during 2009 were also recognized.  In connection with the negative plan amendment, the Company recognized an $11.9 million reduction of its benefit obligation for hourly retiree medical and life insurance benefit plans.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare as well as a subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The Company's postretirement benefit obligation and net periodic benefit cost do not reflect the effects of the Act, as the Company does not anticipate qualifying for the subsidy based on its current plan designs.
 
Costs. Pension and other postretirement benefit costs included the following components for 2011, 2010 and 2009:
 
         
Other Postretirement
  
   
Pension Benefits
    
Benefits
  
(in millions)
  
2011
    
2010
    
2009
    
2011
    
2010
    
2009
  
                                     
Service cost
   $ 1.1     $ 1.1     $ 9.2     $ 0.2     $ 0.4     $ 1.1  
Interest cost
     62.4       64.8       66.4       3.2       3.9       4.9  
Expected return on plan assets
     (53.3 )     (49.5 )     (49.4 )     -       -       -  
Amortization of prior service costs (credits)
     0.4       0.4       3.6       (5.2 )     (3.9 )     (2.4 )
Amortization of net actuarial loss
     21.3       22.2       52.5       1.0       -       -  
Curtailment loss
     0.3       0.1       12.4       -       -       0.7  
Settlement loss
     -       -       1.5       -       -       -  
                                                 
Net pension and other benefit costs
   $ 32.2     $ 39.1     $ 96.2     $ (0.8 )   $ 0.4     $ 4.3  

 
Benefit Obligations and Funded Status. A reconciliation of the changes in the benefit obligations and fair value of assets over the two-year period ending December 31, 2011, and a statement of the funded status at December 31 for these years for the Company's pension and other postretirement benefit plans follow:

         
Other
  
         
Postretirement
  
   
Pension Benefits
    
Benefits
  
(in millions)
  
2011
    
2010
    
2011
    
2010
  
                         
Reconciliation of benefit obligation:
                        
Benefit obligation at previous December 31
   $ 1,214.2     $ 1,143.8     $ 77.8     $ 76.0  
Service cost
     1.1       1.1       0.2       0.4  
Interest cost
     62.4       64.8       3.2       3.9  
Participant contributions
     -       -       1.7       1.9  
Actuarial losses
     113.1       74.8       2.8       6.6  
Benefit payments
     (71.5 )     (70.4 )     (9.7 )     (10.2 )
Plan amendments
     -       0.1       (6.1 )     (0.8 )
                                 
Benefit obligation at December 31
     1,319.3       1,214.2       69.9       77.8  
                                 
Reconciliation of fair value of plan assets:
                                
Fair value of plan assets at previous December 31
     740.4       682.2       -       -  
Actual return on plan assets
     47.2       91.2       -       -  
Employer contributions
     79.6       37.4       8.0       8.3  
Participant contributions
     -       -       1.7       1.9  
Benefit payments
     (71.5 )     (70.4 )     (9.7 )     (10.2 )
                                 
Fair value of plan assets at December 31
     795.7       740.4       -       -  
                                 
Funded status at December 31
   $ (523.6 )   $ (473.8 )   $ (69.9 )   $ (77.8 )

The amounts included in the Company's Consolidated Balance Sheets as of December 31, 2011 and 2010, were as follows:

               
Other
               
Postretirement
   
Pension Benefits
    
Benefits
(in millions)
  
2011
    
2010
    
2011
    
2010
                       
Accrued expenses
   $ 4.0     $ 4.1     $ 9.2     $ 10.4
Postretirement benefit liabilities
     519.6       469.7       60.7       67.4
                               
Net amount recognized
   $ 523.6     $ 473.8     $ 69.9     $ 77.8

As of December 31, 2011 and 2010, the projected and accumulated benefit obligations for the Company's pension plans were in excess of plan assets for all plans.  The projected and accumulated benefit obligations and fair value of plan assets for the Company's qualified and nonqualified pension plans at December 31 were as follows:

(in millions)
  
2011
    
2010
  
   
 
    
 
  
Projected benefit obligation
   $ 1,319.3     $ 1,214.2  
Accumulated benefit obligation
   $ 1,319.3     $ 1,214.2  
Fair value of plan assets
   $ 795.7     $ 740.4  
Funded status
     60 %     61 %
 
The funded status of these pension plans includes the projected and accumulated benefit obligations for the Company's unfunded, nonqualified pension plan of $43.1 million and $42.0 million at December 31, 2011 and 2010, respectively.

The Company's nonqualified pension plan and other postretirement benefit plans are not funded.

Accumulated Other Comprehensive Income (Loss). The following pretax activity related to pensions and other postretirement benefits was recorded in Accumulated other comprehensive income (loss) as of December 31:

         
Other
  
         
Postretirement
  
   
Pension Benefits
    
Benefits
  
(in millions)
  
2011
    
2010
    
2011
    
2010
  
                         
Prior service costs (credits)
                        
Beginning balance
   $ 0.8     $ 1.2     $ (23.4 )   $ (26.5 )
Prior service costs (credits) arising during the period
     -       0.1       (6.1 )     (0.8 )
Amount recognized as component of net benefit costs
     (0.7 )     (0.5 )     5.2       3.9  
                                 
Ending balance
     0.1       0.8       (24.3 )     (23.4 )
                                 
Net actuarial losses
                                
Beginning balance
     494.1       483.2       13.2       6.6  
Actuarial losses arising during the period
     119.1       33.1       2.8       6.6  
Amount recognized as component of net benefit costs
     (21.3 )     (22.2 )     (1.0 )     -  
                                 
Ending balance
     591.9       494.1       15.0       13.2  
                                 
Total
   $ 592.0     $ 494.9     $ (9.3 )   $ (10.2 )

The estimated pretax prior service cost and net actuarial loss in Accumulated other comprehensive income (loss) at December 31, 2011, expected to be recognized as components of net periodic benefit cost in 2012 for the Company's pension plans, are $0.0 million and $21.9 million, respectively. The estimated pretax prior service credit and net actuarial loss in Accumulated other comprehensive income (loss) at December 31, 2011, expected to be recognized as components of net periodic benefit cost in 2012 for the Company's other postretirement benefit plans, are $6.2 million and $2.2 million, respectively. 
 
Prior service costs and credits associated with other postretirement benefits are being amortized on a straight-line basis over the average future working lifetime to full eligibility for active hourly plan participants and over the average remaining life expectancy for those plans' participants who are fully eligible for benefits.  Actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or the market value of assets are amortized over the remaining service period of active plan participants and over the average remaining life expectancy of inactive plan participants.

Other Postretirement Benefits. Once participants eligible for other postretirement benefits turn 65 years old, the health care benefits become a flat dollar amount based on age and years of service.  The assumed health care cost trend rate for other postretirement benefits for pre-age 65 benefits as of December 31 was as follows:

 
Pre-age 65 Benefits
 
2011
  
2010
       
Health care cost trend rate for next year
7.6%
  
7.8%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
4.5%
  
4.5%
Year rate reaches the ultimate trend rate
2028
  
2028

The health care cost trend rate assumption has an effect on the amounts reported. A one percent change in the assumed health care trend rate at December 31, 2011, would have the following effects:

 
One Percent
  
One Percent
(in millions)
Increase
  
Decrease
       
Effect on total service and interest cost
$0.1
  
$(0.1)
Effect on accumulated postretirement benefit obligation
$1.5
  
$(1.3)

The Company monitors the cost of health care and life insurance benefit plans and reserves the right to make additional changes or terminate these benefits in the future.

Assumptions. Weighted average assumptions used to determine pension and other postretirement benefit obligations at December 31 were as follows:

     
Other
     
Postretirement
 
Pension Benefits
  
Benefits
 
2011
  
2010
  
2011
  
2010
               
Discount rate
4.50%
  
5.30%
  
4.20%
  
4.80%
Rate of compensation increase(A)
0.00%
  
0.00%
  
-
  
-
 
 (A)
Assumption used in determining pension benefit obligation only. The rate of compensation increase was reduced to 0.00% at
December 31, 2008, as a result of the decision to freeze future benefit accruals for those plans where benefits are based on average compensation.

Weighted average assumptions used to determine net pension and other postretirement benefit costs for the years ended December 31 were as follows:

 
2011
  
2010
  
2009
           
Discount rate for pension benefits(A)
5.20%-5.30%
  
5.85%
  
6.00%-7.65%
Discount rate for other postretirement benefits(A)
4.65%-4.80%
  
5.45%
  
5.5%-7.25%
Long-term rate of return on plan assets(B)
7.25%
  
7.50%
  
8.00%
Rate of compensation increase(B)
0.00%
  
0.00%
  
0.00%
 
 (A)
Range of discount rates in 2011 and 2009 reflects the remeasurements of pension and postretirement benefit costs during the year
due to negative plan amendments and curtailments recognized.
 
(B) Assumption used in determining pension benefit cost only.
 
The Company utilized a yield curve analysis to determine the discount rates for pension and other postretirement benefit obligations in 2011, 2010 and 2009. The yield curve consists of spot interest rates at half yearly increments for each of the next 30 years and was developed based on pricing and yield information for high quality corporate bonds rated Aa by Moody's, excluding callable bonds, bonds of less than a minimum size and other filtering criteria. The yield curve analysis matched the cash flows of the Company's benefit obligations.
 
The Company evaluates its assumption regarding the estimated long-term rate of return on plan assets based on historical experience, future expectations of investment returns, asset allocations, investment strategies and views of investment professionals. The Company's long-term rate of return on assets assumptions of 7.25 percent for 2011, 7.5 percent for 2010, and 8.0 percent for 2009, reflects expectations of projected weighted average market returns for the plans' assets.

Master Trust Investments. Assets of the Company's Master Pension Trust (Trust) are invested solely in the interest of the plan participants for the purpose of providing benefits to participants and their beneficiaries. Investment decisions within the Trust are made after giving appropriate consideration to the prevailing facts and circumstances that a prudent person acting in a like capacity would use in a similar situation, and follow the guidelines and objectives established within the investment policy statement for the Trust. In general, the Trust's investment strategy is to invest in a diversified portfolio of assets that will generate returns equal to or in excess of the discount rate used to measure plan liabilities. The excess returns generated from this strategy will contribute to improving the funded position of the plan. In order for returns to exceed the discount rate, the Trust will invest in equities and other asset classes which have had historically higher rates of returns than fixed income investments.  These asset classes have also had lower correlations to changes in plan liabilities resulting from changes in the discount rate.  All investments are continually monitored and reviewed, with a focus on asset allocation, investment vehicles and performance of the individual investment managers, as well as overall Trust performance. Over time, the Company will be shifting a greater percentage of the Trust's assets into long-term fixed-income securities, with an objective of achieving an improved matching of asset returns with changes in liabilities. The Company will consider these changes in asset allocation based on a number of factors including improvements in the plans' funded position, performance of equity investments and changes in the discount rate used to measure plan liabilities.  In 2010, investments in equity assets were transitioned to a passive manager from active equity managers to enable efficient and timely changes in asset allocations and reduce the risk associated with active management.

The Trust asset allocation at December 31, 2011 and 2010, and target allocations for December 31, 2011 were as follows:

 
2011
  
2010
  
Target
Allocations
           
Equity securities:
          
United States
46%
  
54%
  
45%
International
  8%
  
11%
  
10%
Fixed-income securities
42%
  
33%
  
45%
Short-term investments
  4%
  
2%
  
-
           
Total
100%
  
100%
  
100%
 
The fair values of the Trust's pension assets at December 31, 2011, by asset class were as follows:

 
Fair Value Measurements at December 31, 2011 (A)
                     
(in millions)
      
Quoted Prices
            
       
in Active
            
       
Markets for
    
Significant
    
Significant
       
Identical
    
Observable
    
Unobservable
       
Assets
    
Inputs
    
Inputs
Asset Class
Total
    
(Level 1)
    
(Level 2)
    
(Level 3)
Short-term investments
 $ 28.9     $ 0.1     $ 28.8     $ -
Equity securities: (B)
                            
United States
   367.2       -       367.2       -
International
   65.4       -       65.4       -
Debt securities:
                            
Government securities (C)
   113.6       75.6       38.0       -
Corporate securities (D)
   98.5       -       98.5       -
Commingled funds (E)
   126.5       -       126.5       -
Total pension assets at fair value
   800.1     $ 75.7     $ 724.4     $ -
Other assets (F)
   (4.4 )                      
Total pension plan net assets
 $ 795.7                        

   
(A)
See Note 5 – Fair Value Measurements for a description of levels within the fair value hierarchy.  The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety.  A description of the valuation methodologies is provided following these tables.  There were no significant transfers in and/or out of Level 1, Level 2 and Level 3 in 2011.
   
(B)
The majority of equity assets are invested in two indexed funds based on the Russell 3000 Index (U.S.) and the MSCI EAFE Equity Index (International).  The Trust did not directly own any of the Company's common stock as of December 31, 2011.
   
(C)
Government securities are comprised primarily of U.S. Treasury bonds and other government securities.
   
(D)
Corporate securities consist primarily of investment grade bonds issued by companies in diversified industries.
   
(E)
This class includes commingled funds that primarily invest in investment grade corporate securities and government-related securities. This class also includes investments in non-agency collateralized mortgage obligation and mortgage-backed securities, futures and options.
   
(F)
This class includes interest receivable and receivables/payables for securities sold/purchased.
   
 
The fair values of the Trust's pension assets at December 31, 2010, by asset class were as follows:

   
Fair Value Measurements at December 31, 2010 (A)
                       
(in millions)
        
Quoted Prices
            
         
in Active
            
         
Markets for
    
Significant
    
Significant
         
Identical
    
Observable
    
Unobservable
         
Assets
    
Inputs
    
Inputs
Asset Class
  
Total
    
(Level 1)
    
(Level 2)
    
(Level 3)
Short-term investments
   $ 18.3     $ -     $ 18.3     $ -
Equity securities: (B)
                              
United States
     393.5       0.3       393.2       -
International
     82.6       -       82.6       -
Debt securities:
                              
Government securities (C)
     49.8       24.6       25.2       -
Corporate securities (D)
     9.1       -       9.1       -
Commingled funds (E)
     186.7       -       186.7       -
Real estate (F)
     0.9       -       -       0.9
Other investments (G)
     0.6       -       0.6       -
Total pension assets at fair value
     741.5     $ 24.9     $ 715.7     $ 0.9
Other assets (H)
     (1.1 )                      
Total pension plan net assets
   $ 740.4                        

   
(A)
See Note 5 – Fair Value Measurements for a description of levels within the fair value hierarchy.  The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety.  A description of the valuation methodologies is provided following these tables.  There were no significant transfers in and/or out of Level 1, Level 2 and Level 3 in 2010.
   
(B)
Effective June 2010, active equity managers were replaced with a passive equity manager.  The majority of equity assets are invested in two indexed funds based on the Russell 3000 Index (U.S.) and the MSCI EAFE Equity Index (International).  The Trust did not directly own any of the Company's common stock as of December 31, 2010.
   
(C)
Government securities are comprised primarily of U.S. Treasury bonds and to a lesser extent other government securities.
   
(D)
Corporate securities consist primarily of investment grade bonds issued by companies in diversified industries.
   
(E)
This class includes commingled funds that primarily invest in government-related securities and investment grade corporate securities. This class also includes nominal investments in non-agency collateralized mortgage obligation and mortgage-backed securities, futures and options.
   
(F)
This class represents a limited partnership real estate fund with investments in apartments.  This fund was fully liquidated in 2011.
   
(G)
This class includes a small amount of derivatives (interest rate swaps, options and futures).
   
(H)
This class includes dividends and interest receivable and receivables or payables for securities sold or purchased.
 
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. See Note 5 – Fair Value Measurements for further description of the procedures the Company performs with respect to its Level 2 measurements:

Equity securities: The indexed equity funds are valued at the net asset value (NAV) provided by the investment managers. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding. The indexed equity funds are invested in portfolios of equity securities with the goal of matching returns to specific indices for the specific fund.  Investments in United States equity securities are invested in an index fund that tracks the Russell 3000 index, which is an all cap market index.  International equities are invested in an index fund that tracks the MSCI EAFE index, which is an index that tracks non-U.S. developed markets worldwide.  Other equity securities are valued at quoted market price of securities if available; otherwise, the securities are valued using other pricing sources available to the Trust.

Corporate debt securities: Corporate debt securities are valued based on prices provided by third-party pricing sources, which are based on estimated prices at which a dealer would pay for or sell a security.

Government debt securities: U.S. Treasury bonds are valued using quoted market prices in active markets. Other agency securities are valued based on prices provided by third-party pricing sources, which are based on estimated prices at which a dealer would pay for or sell a security.

Short-term investments, commingled funds: Short-term investments and commingled funds are valued at the net asset value (NAV) provided by the investment managers. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding.  Investments in fixed income commingled funds include long-duration corporate bonds and government-related securities with the goal of preserving capital and maximizing total return consistent with prudent investment management.

Real estate: The limited partnership real estate fund was fully liquidated in 2011.

Other investments: Derivative instruments are valued using market indices.

A reconciliation of the changes in the fair value measurements of pension plan assets using significant unobservable inputs (Level 3) for the year ended December 31, 2011, follows:

   
Real
  
(in millions)
  
Estate
  
       
Beginning balance at December 31, 2010
   $ 0.9  
Actual return on plan assets:
        
Unrealized gains (losses)
     -  
Realized gains (losses)
     -  
Purchases, sales and settlements
     (0.9 )
Transfers in/(out)
     -  
         
Ending balance at December 31, 2011
   $ -  

A reconciliation of the changes in the fair value measurements of pension plan assets using significant unobservable inputs (Level 3) for the year ended December 31, 2010, follows:

   
United States
    
Real
    
Other
        
(in millions)
  
Equities
    
Estate
    
Investments
    
Total
  
                         
Beginning balance at December 31, 2009
   $ 2.3     $ 79.8     $ 5.8     $ 87.9  
Actual return on plan assets:
                                
Unrealized gains (losses)
     0.3       8.3       10.2       18.8  
Realized gains (losses)
     -       (11.2 )     (10.2 )     (21.4 )
Purchases, sales and settlements
     (2.3 )     (76.0 )     (5.8 )     (84.1 )
Transfers in/(out)
     (0.3 )     -       -       (0.3 )
                                 
Ending balance at December 31, 2010
   $  -     $ 0.9     $ -     $ 0.9  
 
 
Expected Cash Flows. The expected cash flows for the Company's pension and other postretirement benefit plans follow:
 
 
 
 
(in millions)
  
Pension Benefits
    
Other Post- retirement Benefits
           
Company contributions expected to be made in 2012 (A)
   $ 79.0     $ 9.2
Expected benefit payments (which reflect future service):
              
2012
   $ 76.1     $ 9.2
2013
   $ 77.9     $ 7.9
2014
   $ 79.6     $ 6.7
2015
   $ 80.9     $ 6.3
2016
   $ 82.0     $ 6.0
2017-2021
   $ 418.0     $ 24.1
 
 (A)
The Company currently anticipates contributing approximately $75.0 million to fund the qualified pension plans and approximately $4.0 million to cover benefit
payments in the unfunded, nonqualified pension plan in 2012.  Company contributions are subject to change based on market conditions or Company discretion
 
The Company also provides postemployment benefits to qualified former or inactive employees. The pretax prior service credits in Accumulated other comprehensive income (loss) recognized in income was $1.3 million in both 2011 and 2010. The estimated pretax prior service credit in Accumulated other comprehensive income (loss) at December 31, 2011, expected to be recognized in income in 2012, is $1.3 million.